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Report and discussion related to forms of assistance for HOME single family construction activities
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BACKGROUND
The Single Family and Homeless Programs (SFHP) Division administers the HOME Single Family Program activities for TDHCA. HUD regulations grant Participating Jurisdictions considerable flexibility in determining how HOME assistance is structured, allowing investments to be made as forgivable loans, deferred payment loans, repayable loans, or through other mechanisms that support program goals. Federal rules also permit a shared net proceeds recapture approach, which allows a Participating Jurisdiction to recover a portion of net appreciation when a property is sold, transferred, or refinanced during the affordability period. This flexibility gives TDHCA the opportunity to design a policy that balances the goal of maintaining long-term affordability for homeowners with the need to preserve and replenish federal funds for program use.
In contrast to the Texas Bootstrap Loan (Bootstrap) Program, the HOME Program does not always require repayment of the investment of HOME funds. Our largest Single Family HOME activity with a construction component is Homeowner Reconstruction Assistance (HRA), which does not currently require repayment. Over the past three years, we have completed an average of 119 HRA projects per year (not requiring repayment), and an average of 43 Bootstrap projects per year (requiring repayment). We have not completed any Contract for Deed or Homebuyer Assistance with New Construction projects in this timeframe and have only completed ten Single Family Development projects.
Whether assistance is required to be repaid for Single Family HOME projects depends on the activity type, as shown below:
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No Payment Required |
Payment Required |
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Homeowner Reconstruction Assistance • Conditional Grant Agreement with five-year term unless a loan is required by federal regulations; or • Deferred forgivable loan with 15-year term and annual forgiveness |
Single Family Development • Repayable loan with 30-year term and 15-year occupancy requirement • May charge up to 5% interest • May receive an additional deferred forgivable loan for closing costs and mortgage buy down depending on needs assessment |
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Contract for Deed • Deferred forgivable loan with 15-year term and annual forgiveness |
Homebuyer Assistance with New Construction • Repayable loan with term dependent on household income and project cost • May charge up to 5% interest |
Staff is seeking feedback from the Single Family Committee on the issue of repayment particularly in the HRA and Contract for Deed activities. In the history of the HRA Program, which is our primary program that would be impacted if the Department began to require repayment, TDHCA did implement a requirement for assistance to be in the form of a loan from December 2008 through October 2010, with no alternative option. In October 2010, Conditional Grant Agreements were implemented to replace the loan requirement, that no longer required repayment, but still secured a state affordability period when a federal affordability period was not required. This update was in response to stakeholder resistance to the loan requirements, which led to a balance of deobligated and uncommitted funds that exceeded $40M. Most loans under the loan-only structure were deferred forgivable with a term ranging from 5-20 years; the only households subject to repayment were households with income between 60 and 80 percent of the Area Median Family Income (AMFI). Since October 2010, HRA has been provided as either grants or deferred forgivable loans when there is a required federal affordability period.
There are advantages and also concerns whether the Single Family HOME activities continue as non-repayable loans, or as repayable loans. Those issues are noted below.
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Advantages |
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Conditional Grants and Deferred Forgivable Loans |
Repayable Loans |
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• Households with extremely low incomes qualify for assistance • No underwriting requirements for the homeowner are triggered • Decreased administrative burden for the Department and Administrators • Familiar to stakeholders |
• Funds are recycled as program income to be reinvested for assistance to additional households • Escrow accounts ensure that taxes and insurance are paid • Household income will be tested to support payment of increased property taxes and insurance |
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Concerns |
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• Funds are used only once and no funds are returned and recycled for future use • No assurance that taxes and insurance are paid; no protection from tax liens • Less clarity about penalty for default under a grant agreement vs. default resulting in repayment of a loan • Clouded title if assistance is a conditional grant |
• Initially there may be decreased participation as administrators (new or existing) set up new processes and seek new clients • Possible increase in foreclosure • Increased administrative burden to Administrators and the Department • Extensive training needs for Administrators • Very low income households, including elderly and persons with disabilities, may not meet underwriting guidelines |
If the SF Committee indicates to staff that there is interest in a change in the current policy of nonrepayable loans, staff will then present an item to the full Board at a subsequent meeting. Any policy change will take approximately six months. This allows time for rulemaking with significant stakeholder feedback and participation, which is crucial to the success of any changes considered for implementation. After any rule change, manuals, forms, training materials and internal processes will also then be revised to reflect policy changes.